First Defiance Financial Corp. Reports $5.2 Million of Net Income for
the 2012 Fourth Quarter, up 27% from Fourth Quarter 2011, and Record
Full Year Earnings of $18.7 Million, up 20% from Full Year 2011

Net Income of $5.2 million for 2012 fourth quarter, up from $4.1
million in the fourth quarter of 2011

Diluted earnings per share for fourth quarter of $0.52, up from
$0.36 in the fourth quarter of 2011

Provision for Loan Losses of $2.6 million, down from $4.1 million
in the fourth quarter of 2011

Net Interest Margin of 3.92%, up from 3.83% in the fourth quarter
of 2011

Steady loan growth the last three quarters of 2012

January 28, 2013 05:00 PM Eastern Standard Time

DEFIANCE, Ohio--(BUSINESS WIRE)--First Defiance Financial Corp. (NASDAQ: FDEF) announced today record net
income for the fiscal year ended December 31, 2012 totaled $18.7
million, or $1.81 per diluted common share compared to $15.5 million or
$1.42 per diluted common share for the year ended December 31, 2011. For
the fourth quarter ended December 31, 2012, First Defiance earned $5.2
million or $0.52 per diluted common share compared to $4.1 million or
$0.36 per diluted common share for the fourth quarter of 2011. The
fourth quarter of 2012 included $2.0 million in prepayment fees from the
early payment of FHLB advances, offset by $1.6 million of gains on the
sale of securities associated with a balance sheet structuring strategy.

“I am pleased with the record net income in the full year of 2012 and
overall performance for the fourth quarter as the country continues to
rebound from the economic challenges of the last several years,” said
William J. Small, Chairman, President, and Chief Executive Officer of
First Defiance Financial Corp. “We are pleased with the strong mortgage
banking results this quarter and throughout the full year, as well as
the steady improvement in credit quality.”

In the fourth quarter of 2012, the Company executed a balance sheet
restructuring strategy to enhance the Company’s current and future
profitability while increasing its capital ratios and protecting the
balance sheet against rising rates. The strategy required taking an
after tax loss of approximately $260,000 through selling $60 million in
securities for a gain of $1.6 million and paying off $62 million in FHLB
advances with a prepayment penalty of $2.0 million. The anticipated
positive effects of this strategy include: 1) increases in the net
interest margin and net interest income, 2) improvement in all capital
ratios, and 3) increases in return on average assets and return on
average equity.

Credit Quality

The fourth quarter 2012 results include provision for loan losses
expense of $2.6 million, compared with $4.1 million in the same period
in 2011. The allowance for loan loss as a percentage of total loans
decreased to 1.75% at December 31, 2012 from 2.24% at December 31, 2011.

Non-performing assets totaled $36.4 million at December 31, 2012, down
from $46.3 million at December 31, 2011. The December 31, 2012 balance
included $32.6 million of loans that were non-accrual or 90 days past
due. Additionally, First Defiance had $3.8 million of real estate owned
at December 31, 2012 up from $3.6 million at December 31, 2011. Loans
classified as Trouble Debt Restructured because of modification of terms
granted to borrowers totaled $28.2 million at December 31, 2012 compared
to $3.4 million for the same period in 2011. For the fourth quarter of
2012, First Defiance recorded net charge-offs of $2.2 million, which
represented 0.59% of average loans outstanding (annualized) for the
quarter, compared with 2.49% in the fourth quarter of 2011.

“Asset quality continued to show improvement this quarter, reflected by
a 17% reduction in non-performing loans from the fourth quarter of
2011,” Small said. “We had a 75% decrease in net charge-offs in the 2012
fourth quarter compared with the fourth quarter of 2011, reflecting
continuation of improvement in the credit profile of First Defiance.”

Net Interest Margin

Net interest income decreased to $17.4 million in the fourth quarter of
2012 compared to $17.5 million in the 2011 fourth quarter, and was up
slightly from the third quarter of 2012, which was $17.2 million. Net
interest margin was 3.92% for the 2012 fourth quarter compared to 3.80%
in the third quarter of 2012 and 3.83% in the fourth quarter of 2011.
Yield on interest earning assets declined by 23 basis points to 4.40% in
the fourth quarter of 2012 from 4.63% in the 2011 fourth quarter, while
the cost of interest-bearing liabilities and non-interest-bearing demand
deposits decreased by 34 basis points, to 0.50% from 0.84%. The net
interest margin was positively impacted by the Company’s balance sheet
restructuring strategy that was executed in the fourth quarter of 2012.

“We are pleased with the increase in our net interest margin for the
quarter and the stability seen throughout this economic cycle,” said
Small. “The balance sheet restructuring we did in the fourth quarter was
an important move as we anticipate that an extended low rate environment
and continued pricing pressures will put pressure on the margin.”

Non-Interest Income

Non-interest income for the 2012 fourth quarter increased to $10.2
million from $7.9 million in the fourth quarter of 2011. Gain on
investment securities was $1.6 million for the fourth quarter of 2012,
compared to $169,000 in the fourth quarter of 2011. All of the gains
from the sale of securities in the fourth quarter of 2012 were due to
the executed balance sheet restructure. Income from the sale of
insurance and investment products remained stable at $2.0 million in the
fourth quarter of 2012, flat with $2.0 million in the same period of
2011. Mortgage banking income increased to $2.7 million in the fourth
quarter of 2012, compared with $1.9 million in the same period in 2011.
Gains from the sale of mortgage loans increased in the fourth quarter of
2012 to $2.7 million from $1.7 million in the fourth quarter of 2011.
Mortgage loan servicing revenue increased slightly in the fourth quarter
2012 to $888,000 from $874,000 in the fourth quarter of 2011.

First Defiance recorded a positive valuation adjustment of $96,000 on
mortgage servicing rights (“MSR”) in the fourth quarter of 2012,
compared with a positive adjustment of $181,000 in the fourth quarter of
2011. The MSR valuation adjustment is a reflection of the increase in
the fair value of certain sectors of the Company’s portfolio of MSRs.

“Non-interest income increased, driven by mortgage banking and solid fee
income, which are part of our core operating strategy. Gain on sale of
mortgage loans was higher this quarter compared to the 2011 fourth
quarter driven by higher loan activity,” stated Small. "The mortgage
originations for the bank in 2012 represented a record for the highest
dollar level of production in a year."

Non-Interest Expenses

Total non-interest expense was $17.5 million for the quarter ended
December 31, 2012, an increase of $1.9 million from $15.6 million in the
fourth quarter of 2011. The fourth quarter of 2012 included $2.0 million
of prepayment fees associated with the repayment of FHLB debt.

Compensation and benefits decreased by $290,000 in the fourth quarter of
2012 compared to the fourth quarter of 2011. The year over year decrease
in compensation and benefits expense is largely due to increased
mortgage and commercial loan volume that results in deferred
compensation costs associated with that volume. Other non-interest
expenses increased $1.7 million in the fourth quarter of 2012 as a
result of recording $2.0 million in FHLB prepayment fees as part of the
executed balance sheet restructure. The increase in other non-interest
expense was slightly offset by a decrease in credit related expenses,
which consists of secondary market buy-back losses, real estate owned
expenses and credit and collection expenses, of $553,000 in the fourth
quarter of 2012 from the fourth quarter of 2011.

Annual Results

On an annual basis, earnings for 2012 were $18.7 million compared with
$15.5 million in 2011. Net interest income for 2012 totaled $69.0
million, a decrease of $875,000 or 1.25% from 2011. Average
interest-earning assets increased to $1.862 billion for 2012 compared to
$1.848 billion in 2011. Net interest margin for 2012 was 3.81%, compared
with 3.88% for 2011.

The provision for loan losses for 2012 was $10.9 million, which was down
from $12.4 million in 2011.

Non-interest income for the twelve month period ended December 31, 2012
was $34.4 million compared to $27.5 million during the same period of
2011. The 2012 results include securities gains of $2.1 million,
slightly offset by $5,000 related to other-than-temporary impairment
(“OTTI”) charges recognized for one impaired investment security. The
2011 securities gains of $216,000 consisted of $218,000 related to gain
on sale of available for sale securities slightly offset by $2,000
related to OTTI charges recognized for one impaired investment security.
Service fees and other charges were $10.8 million for the year ended
2012 compared to $11.4 million during 2011. Mortgage banking income for
2012 was $9.7 million, up from $6.4 million in 2011. Insurance and
investment sales revenues increased to $8.7 million in 2012, compared to
$7.1 million in 2011. The insurance and investments increase is
primarily due to the Payak-Dubbs Insurance Agency, Inc. acquisition that
was completed on July 1, 2011. Other non-interest income was $1.5
million for the year ended 2012 compared to $478,000 for the same period
in 2011 mainly due to receiving $618,000 from an insurance settlement in
2012.

Non-interest expense increased to $65.8 million for the full year of
2012 from $62.8 million in 2011. The full year of 2012 includes $2.0
million of prepayment fees associated with the repayment of FHLB debt
which is included in other non-interest expense. Compensation and
benefits expense increased $1.0 million for the year ended 2012 compared
to 2011 mainly resulting from the insurance acquisition in July 2011
which added $1.6 million in compensation and benefits expense in 2012
compared to $797,000 for the same period in 2011.

Other non-interest expense was $14.4 million for the year ended 2012
compared to $13.2 million for the same period in 2011. The main
contributor to the increase was the previously mentioned $2.0 million
prepayment expense on FHLB debt. Other non-interest expense also
includes $2.2 million of credit, collection and real estate owned costs
compared with $3.6 million in 2011.

Total Assets at $2.05 Billion

Total assets at December 31, 2012 were $2.05 billion, compared to $2.07
billion at December 31, 2011. Net loans receivable (excluding loans held
for sale) were $1.50 billion at December 31, 2012 compared to $1.45
billion at December 31, 2011. Total cash and cash equivalents were
$136.8 million at December 31, 2012 compared with $174.9 million at
December 31, 2011. Total deposits at December 31, 2012 were $1.67
billion compared to $1.60 billion at December 31, 2011. Non-interest
bearing deposits at December 31, 2012 were $315.1 million compared to
$245.9 million at December 31, 2011. Total stockholders’ equity was
$258.1 million at December 31, 2012 compared to $278.1 million at the
December 31, 2011. Also at December 31, 2012, goodwill and other
intangible assets totaled $66.3 million compared to $67.7 million at
December 31, 2011. The Company paid $37.0 million to repurchase its
outstanding preferred stock related to TARP during 2012, which
effectively lowered capital levels.

Succession Plan

Also at today’s Board meeting, Mr. Small informed the Board of Directors
of First Defiance that he plans to retire from his management role at
First Defiance effective December 31, 2013. With this announcement, the
Board approved the initiation of its management transition plan. As a
result, effective January 1, 2014, Donald P. Hileman, currently
Executive Vice President and Chief Financial Officer, will assume the
role of President and CEO of First Defiance. Jim Rohrs will remain in
his position as President and CEO of First Federal Bank. Mr. Small,
currently Chairman, President, and CEO of First Defiance and Chairman of
the Bank, will retire as an active employee of the Company, but will
remain as Chairman of both the holding company and the Bank.

“This is a part of our succession plan that has been discussed over the
last several years,” stated Lead Independent Director Steve Boomer.
“With improving performance trends we remain focused on the long term
success of the Company, including management succession. Implementing
the plan now allows us to better facilitate the transition.”

Conference Call

First Defiance Financial Corp. will host a conference call at 11:00 a.m.
(EST) on Tuesday, January 29, 2013 to discuss the earnings results and
business trends. The conference call may be accessed by calling
1-888-317-6016. A live webcast may be accessed at http://services.choruscall.com/links/fdef130122.html

Audio replay of the Internet Web cast will be available at www.fdef.com
until April 1, 2013 at 9:00 a.m.

First Defiance Financial Corp.

First Defiance Financial Corp., headquartered in Defiance, Ohio, is the
holding company for First Federal Bank of the Midwest and First
Insurance Group. First Federal operates 33 full service branches and 42
ATM locations in northwest Ohio, southeast Michigan and Fort Wayne,
Indiana. First Insurance Group is a full service insurance agency with
six offices throughout northwest Ohio.

This news release may contain certain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21 B of the Securities Act of 1934, as amended, which are
intended to be safe harbors created thereby. Those statements may
include, but are not limited to, all statements regarding intent,
beliefs, expectations, projections, forecasts and plans of First
Defiance Financial Corp. and its management, and specifically include
statements regarding: changes in economic conditions, the nature, extent
and timing of governmental actions and reforms, future movements of
interest rates, the production levels of mortgage loan generation, the
ability to continue to grow loans and deposits, the ability to benefit
from a changing interest rate environment, the ability to sustain credit
quality ratios at current or improved levels, the ability to sell real
estate owned properties, continued strength in the market area for First
Federal Bank of the Midwest, and the ability of the Company to grow in
existing and adjacent markets. These forward-looking statements involve
numerous risks and uncertainties, including those inherent in general
and local banking, insurance and mortgage conditions, competitive
factors specific to markets in which the Company and its subsidiaries
operate, future interest rate levels, legislative and regulatory
decisions or capital market conditions and other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange
Commission (SEC) filings, including the Company's Annual Report on Form
10-K for the year ended December 31, 2011. One or more of these factors
have affected or could in the future affect the Company's business and
financial results in future periods and could cause actual results to
differ materially from plans and projections. Therefore, there can be no
assurances that the forward-looking statements included in this news
release will prove to be accurate. In light of the significant
uncertainties in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation
by the Company or any other persons, that the objectives and plans of
the Company will be achieved. All forward-looking statements made in
this news release are based on information presently available to the
management of the Company. The Company assumes no obligation to update
any forward-looking statements.

Consolidated Balance Sheets

First Defiance Financial Corp.

(Unaudited)

December 31,

December 31,

(in thousands)

2012

2011

Assets

Cash and cash equivalents

Cash and amounts due from depository institutions

$

45,832

$

31,931

Interest-bearing deposits

91,000

143,000

136,832

174,931

Securities

Available-for sale, carried at fair value

194,101

232,919

Held-to-maturity, carried at amortized cost

508

661

194,609

233,580

Loans

1,525,257

1,487,076

Allowance for loan losses

(26,711

)

(33,254

)

Loans, net

1,498,546

1,453,822

Loans held for sale

22,064

13,841

Mortgage servicing rights

7,833

8,690

Accrued interest receivable

5,594

6,142

Federal Home Loan Bank stock

20,655

20,655

Bank Owned Life Insurance

41,832

35,908

Office properties and equipment

39,663

40,045

Real estate and other assets held for sale

3,805

3,628

Goodwill

61,525

61,525

Core deposit and other intangibles

4,738

6,151

Deferred taxes

78

629

Other assets

9,174

8,643

Total Assets

$

2,046,948

$

2,068,190

Liabilities and Stockholders’ Equity

Non-interest-bearing deposits

$

315,132

$

245,927

Interest-bearing deposits

1,352,340

1,350,314

Total deposits

1,667,472

1,596,241

Advances from Federal Home Loan Bank

12,796

81,841

Notes payable and other interest-bearing liabilities

51,702

60,386

Subordinated debentures

36,083

36,083

Advance payments by borrowers for tax and insurance

1,473

1,402

Other liabilities

19,294

14,110

Total liabilities

1,788,820

1,790,063

Stockholders’ Equity

Preferred stock, net of discount

-

36,640

Common stock, net

127

127

Common stock warrant

878

878

Additional paid-in-capital

136,046

135,825

Accumulated other comprehensive income

4,274

3,997

Retained earnings

164,103

148,011

Treasury stock, at cost

(47,300

)

(47,351

)

Total stockholders’ equity

258,128

278,127

Total Liabilities and Stockholders’ Equity

$

2,046,948

$

2,068,190

Consolidated Statements of Income (Unaudited)

First Defiance Financial Corp.

Three Months Ended

Twelve Months Ended

December 31,

December 31,

(in thousands, except per share amounts)

2012

2011

2012

2011

Interest Income:

Loans

$

17,774

$

19,095

$

72,621

$

78,648

Investment securities

1,504

1,855

7,123

7,086

Interest-bearing deposits

51

115

300

466

FHLB stock dividends

243

205

899

867

Total interest income

19,572

21,270

80,943

87,067

Interest Expense:

Deposits

1,775

2,527

8,169

12,175

FHLB advances and other

164

761

2,424

3,203

Subordinated debentures

158

333

971

1,278

Notes Payable

89

133

373

530

Total interest expense

2,186

3,754

11,937

17,186

Net interest income

17,386

17,516

69,006

69,881

Provision for loan losses

2,618

4,099

10,924

12,434

Net interest income after provision for loan losses

14,768

13,417

58,082

57,447

Non-interest Income:

Service fees and other charges

2,631

2,952

10,779

11,387

Mortgage banking income

2,741

1,888

9,665

6,437

Gain on sale of non-mortgage loans

20

10

70

361

Gain on sale of securities

1,611

169

2,139

218

Impairment on securities

(5

)

-

(5

)

(2

)

Insurance and investment sales commissions

1,997

1,963

8,676

7,109

Trust income

146

134

616

599

Income from Bank Owned Life Insurance

241

226

924

929

Other non-interest income

798

534

1,510

478

Total Non-interest Income

10,180

7,876

34,374

27,516

Non-interest Expense:

Compensation and benefits

7,806

8,096

32,566

31,554

Occupancy

1,860

1,743

7,578

7,166

FDIC insurance premium

660

658

2,691

2,922

State franchise tax

846

385

2,495

2,010

Data processing

1,183

1,140

4,660

4,257

Acquisition related charges

-

-

-

234

Amortization of intangibles

344

391

1,413

1,442

Other non-interest expense

4,839

3,176

14,377

13,179

Total Non-interest Expense

17,538

15,589

65,780

62,764

Income before income taxes

7,410

5,704

26,676

22,199

Income taxes

2,253

1,640

8,012

6,665

Net Income

$

5,157

$

4,064

$

18,664

$

15,534

Dividends Accrued on Preferred Shares

-

(462

)

(900

)

(1,850

)

Accretion on Preferred Shares

-

(46

)

(359

)

(177

)

Redemption of Preferred Shares

-

-

642

-

Net Income Applicable to Common Shares

$

5,157

$

3,556

$

18,047

$

13,507

Earnings per common share:

Basic

$

0.53

$

0.37

$

1.86

$

1.44

Diluted

$

0.52

$

0.36

$

1.81

$

1.42

Average Shares Outstanding:

Basic

9,729

9,726

9,728

9,368

Diluted

10,012

9,908

9,998

9,540

Financial Summary and Comparison

First Defiance Financial Corp.

(Unaudited)

(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

(dollars in thousands, except per share data)

2012

2011

% change

2012

2011

% change

Summary of Operations

Tax-equivalent interest income (1)

$

19,993

$

21,665

(7.7

)%

$

82,598

$

88,546

(6.7

)%

Interest expense

2,186

3,754

(41.8

)

11,937

17,186

(30.5

)

Tax-equivalent net interest income (1)

17,807

17,911

(0.6

)

70,661

71,360

(1.0

)

Provision for loan losses

2,618

4,099

(36.1

)

10,924

12,434

(12.1

)

Tax-equivalent NII after provision for loan loss (1)

15,189

13,812

10.0

59,737

58,926

1.4

Investment Securities gains

1,611

169

NM

2,139

218

NM

Impairment losses on securities

(5

)

-

NM

(5

)

(2

)

150.0

Non-interest income (excluding securities gains/losses)

8,574

7,707

11.2

32,240

27,300

18.1

Non-interest expense

17,538

15,589

12.5

65,780

62,764

4.8

Income taxes

2,253

1,640

37.4

8,012

6,665

20.2

Net Income

5,157

4,064

26.9

18,664

15,534

20.1

Dividends Declared on Preferred Shares

-

(462

)

(100.0

)

(900

)

(1,850

)

(51.4

)

Accretion on Preferred Shares

-

(46

)

(100.0

)

(359

)

(177

)

102.8

Redemption on Preferred Shares

-

-

-

642

-

NM

Net Income Applicable to Common Shares

5,157

3,556

45.0

18,047

13,507

33.6

Tax equivalent adjustment (1)

421

395

6.6

1,655

1,479

11.9

At Period End

Assets

2,046,948

2,068,190

(1.0

)

Earning assets

1,853,585

1,898,152

(2.3

)

Loans

1,525,257

1,487,076

2.6

Allowance for loan losses

26,711

33,254

(19.7

)

Deposits

1,667,472

1,596,241

4.5

Stockholders’ equity

258,128

278,127

(7.2

)

Average Balances

Assets

2,023,890

2,067,881

(2.1

)

2,063,552

2,058,370

0.3

Earning assets

1,815,263

1,861,186

(2.5

)

1,862,340

1,848,154

0.8

Loans

1,509,611

1,440,839

4.8

1,477,681

1,437,588

2.8

Deposits and interest-bearing liabilities

1,744,274

1,772,812

(1.6

)

1,775,082

1,776,474

(0.1

)

Deposits

1,633,432

1,594,938

2.4

1,619,637

1,590,128

1.9

Stockholders’ equity

256,304

275,848

(7.1

)

267,194

263,913

1.2

Stockholders’ equity / assets

12.66

%

13.34

%

(5.1

)

12.95

%

12.82

%

1.0

Per Common Share Data

Net Income

Basic

$

0.53

$

0.37

43.2

$

1.86

$

1.44

29.2

Diluted

0.52

0.36

44.4

1.81

1.42

27.5

Dividends

0.05

0.05

-

0.20

0.05

300.0

Market Value:

High

$

19.38

$

15.39

25.9

$

19.38

$

15.51

25.0

Low

15.75

13.00

21.2

14.41

11.89

21.2

Close

19.19

14.59

31.5

19.19

14.59

31.5

Common Book Value

26.44

24.74

6.9

26.44

24.74

6.9

Tangible Common Book Value

19.63

17.78

10.4

19.63

17.78

10.4

Shares outstanding, end of period (000)

9,729

9,726

0.0

9,729

9,726

0.0

Performance Ratios (annualized)

Tax-equivalent net interest margin (1)

3.92

%

3.83

%

2.4

3.81

%

3.88

%

(1.7

)

Return on average assets

1.01

%

0.78

%

30.0

0.90

%

0.75

%

19.8

Return on average equity

8.00

%

5.85

%

36.9

6.99

%

5.89

%

18.7

Efficiency ratio (2)

66.48

%

60.85

%

9.2

63.93

%

63.62

%

0.5

Effective tax rate

30.40

%

28.75

%

5.7

30.03

%

30.02

%

0.0

Dividend payout ratio (basic)

9.43

%

13.51

%

NM

10.75

%

3.47

%

NM

(1)

Interest income on tax-exempt securities and loans has been
adjusted to a tax-equivalent basis using the statutory federal
income tax rate of 35%

Revenue from sales and servicing of mortgage loans consisted of the
following:

Three Months Ended

Twelve Months Ended

December 31,

December 31,

(dollars in thousands)

2012

2011

2012

2011

Gain from sale of mortgage loans

$

2,709

$

1,653

$

10,599

$

5,607

Mortgage loan servicing revenue (expense):

Mortgage loan servicing revenue

888

874

3,387

3,403

Amortization of mortgage servicing rights

(952

)

(820

)

(3,562

)

(2,169

)

Mortgage servicing rights valuation adjustments

96

181

(759

)

(404

)

32

235

(934

)

830

Total revenue from sale and servicing of mortgage loans

$

2,741

$

1,888

$

9,665

$

6,437

Yield Analysis

First Defiance Financial Corp.

Three Months Ended December 31,

(dollars in thousands)

2012

2011

Average

Yield

Average

Yield

Balance

Interest(1)

Rate(2)

Balance

Interest(1)

Rate(2)

Interest-earning assets:

Loans receivable

$

1,509,611

$

17,799

4.69

%

$

1,440,839

$

19,123

5.27

%

Securities

204,882

1,900

3.86

%

235,517

2,222

3.85

%

Interest Bearing Deposits

80,115

51

0.25

%

164,175

115

0.28

%

FHLB stock

20,655

243

4.68

%

20,655

205

3.94

%

Total interest-earning assets

1,815,263

19,993

4.40

%

1,861,186

21,665

4.63

%

Non-interest-earning assets

208,627

206,695

Total assets

$

2,023,890

$

2,067,881

Deposits and Interest-bearing liabilities:

Interest bearing deposits

$

1,338,400

$

1,775

0.53

%

$

1,348,424

$

2,527

0.74

%

FHLB advances and other

19,015

164

3.43

%

81,845

761

3.69

%

Other Borrowings

55,688

89

0.64

%

59,832

133

0.88

%

Subordinated debentures

36,139

158

1.74

%

36,197

333

3.65

%

Total interest-bearing liabilities

1,449,242

2,186

0.60

%

1,526,298

3,754

0.98

%

Non-interest bearing deposits

295,032

-

-

246,514

-

-

Total including non-interest-bearing demand deposits

1,744,274

2,186

0.50

%

1,772,812

3,754

0.84

%

Other non-interest-bearing liabilities

23,312

19,221

Total liabilities

1,767,586

1,792,033

Stockholders' equity

256,304

275,848

Total liabilities and stockholders' equity

$

2,023,890

$

2,067,881

Net interest income; interest rate spread

$

17,807

3.80

%

$

17,911

3.65

%

Net interest margin (3)

3.92

%

3.83

%

Average interest-earning assets to average interest bearing
liabilities

125

%

122

%

Twelve Months Ended December 31,

2012

2011

Average

Yield

Average

Yield

Balance

Interest(1)

Rate

Balance

Interest(1)

Rate

Interest-earning assets:

Loans receivable

$

1,477,681

$

72,724

4.92

%

$

1,437,588

$

78,773

5.49

%

Securities

247,442

8,675

3.63

%

205,609

8,440

4.19

%

Interest Bearing Deposits

116,562

300

0.26

%

184,126

466

0.25

%

FHLB stock

20,655

899

4.35

%

20,831

867

4.17

%

Total interest-earning assets

1,862,340

82,598

4.44

%

1,848,154

88,546

4.80

%

Non-interest-earning assets

201,212

210,216

Total assets

$

2,063,552

$

2,058,370

Deposits and Interest-bearing liabilities:

Interest bearing deposits

$

1,352,724

$

8,169

0.60

%

$

1,358,785

$

12,175

0.90

%

FHLB advances and other

66,121

2,424

3.67

%

93,669

3,203

3.43

%

Other Borrowings

53,155

373

0.70

%

56,464

530

0.94

%

Subordinated debentures

36,169

971

2.68

%

36,213

1,278

3.54

%

Total interest-bearing liabilities

1,508,169

11,937

0.79

%

1,545,131

17,186

1.12

%

Non-interest bearing deposits

266,913

-

-

231,343

-

-

Total including non-interest-bearing demand deposits

1,775,082

11,937

0.67

%

1,776,474

17,186

0.97

%

Other non-interest-bearing liabilities

21,276

17,983

Total liabilities

1,796,358

1,794,457

Stockholders' equity

267,194

263,913

Total liabilities and stockholders' equity

$

2,063,552

$

2,058,370

Net interest income; interest rate spread

$

70,661

3.64

%

$

71,360

3.69

%

Net interest margin (3)

3.81

%

3.88

%

Average interest-earning assets to average interest bearing
liabilities

123

%

120

%

(1)

Interest on certain tax exempt loans and securities is not taxable
for Federal income tax purposes. In order to compare the
tax-exempt yields on these assets to taxable yields, the interest
earned on these assets is adjusted to a pre-tax equivalent amount
based on the marginal corporate federal income tax rate of 35%.

(2)

Annualized

(3)

Net interest margin is net interest income divided by average
interest-earning assets.

Selected Quarterly Information

First Defiance Financial Corp.

(dollars in thousands, except per share data)

4th Qtr 2012

3rd Qtr 2012

2nd Qtr 2012

1st Qtr 2012

4th Qtr 2011

Summary of Operations

Tax-equivalent interest income (1)

$

19,993

$

20,525

$

20,935

$

21,144

$

21,665

Interest expense

2,186

2,923

3,273

3,555

3,754

Tax-equivalent net interest income (1)

17,807

17,602

17,662

17,589

17,911

Provision for loan losses

2,618

705

4,097

3,503

4,099

Tax-equivalent NII after provision for loan losses (1)

15,189

16,897

13,565

14,086

13,812

Investment securities gains (losses), including impairment

1,606

103

382

43

169

Non-interest income (excluding securities gains/losses)

8,574

7,677

7,612

8,376

7,707

Non-interest expense

17,538

16,450

15,532

16,259

15,589

Income taxes

2,253

2,366

1,690

1,703

1,640

Net income

5,157

5,434

3,921

4,153

4,064

Dividends Declared on Preferred Shares

-

(3

)

(435

)

(462

)

(462

)

Accretion on Preferred Shares

-

(8

)

(305

)

(46

)

(46

)

Redemption on Preferred Shares

-

642

-

-

-

Net Income (Loss) Applicable to Common Shares

5,157

5,423

3,823

3,645

3,556

Tax equivalent adjustment (1)

421

427

416

390

395

At Period End

Total assets

$

2,046,948

$

2,055,672

$

2,067,616

$

2,142,264

$

2,068,190

Earning assets

1,853,585

1,874,671

1,885,846

1,966,419

1,898,152

Loans

1,525,257

1,512,132

1,500,637

1,473,955

1,487,076

Allowance for loan losses

26,711

26,310

26,409

28,833

33,254

Deposits

1,667,472

1,609,350

1,613,611

1,671,370

1,596,241

Stockholders’ equity

258,128

255,136

249,870

281,364

278,127

Stockholders’ equity / assets

12.61

%

12.41

%

12.08

%

13.13

%

13.45

%

Goodwill

61,525

61,525

61,525

61,525

61,525

Average Balances

Total assets

$

2,023,890

$

2,047,139

$

2,102,675

$

2,080,502

$

2,067,881

Earning assets

1,815,263

1,849,715

1,903,714

1,879,393

1,861,186

Loans

1,509,611

1,481,995

1,462,312

1,456,807

1,440,839

Deposits and interest-bearing liabilities

1,744,274

1,774,312

1,800,036

1,781,710

1,772,812

Deposits

1,633,432

1,605,749

1,629,094

1,610,275

1,594,938

Stockholders’ equity

256,304

251,592

281,031

279,848

275,848

Stockholders’ equity / assets

12.66

%

12.29

%

13.37

%

13.45

%

13.34

%

Per Common Share Data

Net Income:

Basic

$

0.53

$

0.56

$

0.39

$

0.37

$

0.37

Diluted

0.52

0.54

0.38

0.37

0.36

Dividends

0.05

0.05

0.05

0.05

0.05

Market Value:

High

$

19.38

$

18.06

$

17.46

$

17.76

$

15.39

Low

15.75

15.80

15.23

14.41

13.00

Close

19.19

17.26

17.12

16.86

14.59

Book Value

26.44

26.13

25.49

25.06

24.74

Shares outstanding, end of period (in thousands)

9,729

9,729

9,729

9,728

9,726

Performance Ratios (annualized)

Tax-equivalent net interest margin (1)

3.92

%

3.80

%

3.75

%

3.78

%

3.83

%

Return on average assets

1.01

%

1.06

%

0.75

%

0.80

%

0.78

%

Return on average equity

8.00

%

8.59

%

5.61

%

5.97

%

5.85

%

Efficiency ratio (2)

66.48

%

65.07

%

61.45

%

62.62

%

60.85

%

Effective tax rate

30.40

%

30.33

%

30.12

%

29.08

%

28.75

%

Common dividend payout ratio (basic)

9.43

%

8.93

%

12.82

%

13.51

%

13.51

%

(1)

Interest income on tax-exempt securities and loans has been
adjusted to a tax-equivalent basis using the statutory federal
income tax rate of 35%